daytrading july 19 afternoon

Afternoon all,

Thanks Endless, Gttrain, Trees and to all regulars.

Australian shares have moved lower at noon to 4,960 as the market expected to open higher after world markets gained as Fed chairman Ben Bernanke further reassured markets and Wall Street hit a fresh record on better than expected earnings and jobless data.

On the ASX24, the SPI futures contract was 20 points higher to 4972. The Aussie dollar has eased. It was recently buying 91.77 US cents, down from above 92.4 early yesterday. It was also buying 92.06 yen, 69.6 euro cents and 60.9 British pence.

What you need to know

•SPI futures are 20 points higher at 4972
•The $A is lower at 91.77 US cents
•In New York, the S&P500 was 0.5% higher at 1689.27
•In Europe, the FTSE100 added 0.95% to 6634.36
•China iron ore added $US1.50 to $US131.90 a metric tonne
•Gold added 0.5% to $US1285.50 an ounce
•WTI crude oil gained $US1.56 to $US108.0 a barrel
•Reuters/Jefferies CRB index added 0.89% at 290.51

Making news today

There is no major economics news scheduled for today.

In company news:

•Santos fourth quarter production report
Analyst rating changes:

•Woolworths cut to hold at Deutsche Bank
•Sandfire Resources cut to neutral at CIMB
•G8 Education raised to to buy at Citi
•Super Retail Group rated new overweight at JPMorgan
•Ardent Leisure Group cut to neutral at JPMorgan
Offshore overnight

United States

The Dow and the S&P 500 both closed at new record highs due to robust corporate earnings reports and the latest reaffirmation of the Federal Reserve’s easy-money policy.

Key numbers:

•Dow Jones Industrial Average added 0.51% to 15,549.15
•S&P 500 added 0.51% to 1,689.41
•Nasdaq Composite added 0.04% to 3,611.28

Europe

European shares advanced on unexpectedly positive US jobs data and more expected testimony from US Federal Reserve chief Ben Bernanke that he had no preset plans to wind down stimulus.

Key numbers:

•London’s FTSE 100 added 0.95% to 6,634.36
•Frankfurt’s DAX 30 added 1% to 8,337.09
•In Paris the CAC 40 added 1.44% to 3,972.79

Asia

Asian markets closed mixed in a muted reaction after US Federal Reserve chief Ben Bernanke said the bank had no plan to wind down its stimulus until the economy is back on track. The comments, which came as a closely watched report said growth was moderate, helped calm nervous dealers as Wall Street ended in positive territory.

Key numbers:

•Japan's Nikkei added 1.32% to 14,808.50
•Hong Kong's Hang Seng lost 0.12% to 21,345.22
•China's Shanghai composite lost 1.05% to 2,023.40

Commodities

Energy

New York crude oil prices have soared to a 16-month high after upbeat US economic news raised expectations of stronger demand in the world’s biggest economy.

•New York’s main contract, West Texas Intermediate (WTI) for delivery in August, shot up $US1.56 to settle at $US108.04 a barrel, the highest close since March 1, 2012.
•Brent North Sea crude for September closed nine US cents higher at $US108.70 a barrel in London trade.

Precious metals

Gold futures climbed as some traders gleaned a dovish message from Federal Reserve chairman Ben Bernanke’s testimony to the US Senate.

•The most actively traded contract, for August delivery, on Thursday rose $US6.70, or 0.5 per cent, to settle at $US1,284.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

Base metals

Base metals on the London Metal Exchange (LME) closed a touch higher after investors reversed bets on lower prices following recent price falls, although market watchers continued to see lower prices for the metals in the longer term.

•At the close of open-outcry trading on Thursday, copper had gained 0.1 per cent on the previous session’s closing price, to close at $US6,900 a metric ton.
•Aluminum also closed 0.1 per cent higher at $US1,805 a ton, while lead closed up 0.3 per cent at $US2,036.50 a ton.

How we fared yesterday

The sharemarket again nudged above the 5000-point mark but fell away in afternoon trade to end only slightly higher.
At the close, the benchmark S&P/ASX 200 Index was up 11.7 points, or 0.23 per cent, at 4993.4, while the broader All Ordinaries was up 10.4 points, or 0.21 per cent, at 4976.9.

Today’s Financial Calendar
•(JP) - upper house election (Sunday)
•(SRM) - EGM
•(STO) - quarterly production report
•(SYD) - traffic stats

The Overnight Report: It’s All Good

The Dow rose 78 points, or 0.5%, while the S&P gained 0.5% to 1689 and the Nasdaq was relatively flat.

Ben Bernanke spent a second day in front of Congress last night, this time answering questions. The chairman yet again remained on-message, even suggesting it was “way too early” to make a call on when tapering could begin. Given it’s now late July, early assumptions from Wall Street that tapering would begin in September – a view based on improving jobs data – seem misconceived if the Fed believes it’s too early at this stage.

This means more data flow will be needed to paint a clearer picture. After a little bit of a shock from a weak housing starts number on Wednesday, Wall Street was heartened last night by this month’s Philadelphia Fed manufacturing index, which jumped to its highest level in almost two years at 19.8, up from 12.5 in June. The Philly index echoed a similarly positive release from neighbouring New York State earlier in the week.

We should try not to concentrate too much on US weekly new jobless claims, given often sharp week to week volatility that can move markets but is realistically just statistical noise around a trend. We can check in every now and again though to see how the trend is going, and last week claims totalled 334,000, below expectations. Last year was all about hoping to see that number fall under 400,000, which is roughly considered the line across which unemployment starts to fall. The claims trend is thus consistent with recent non-farm payroll results.

And so Wall Street can sail merrily on, knowing that good data are good for the stock market and bad data means more support from the Fed, which is good for the stock market. Quarterly earnings results to date have been mostly to the positive side, albeit concerns linger over revenue numbers that are failing to excite. Sceptics also point to the degree of forecast downgrading that occurred in the period leading up to result season, which makes it difficult for companies to disappoint even if earnings are uninspiring.

Last night Dow components Microsoft and Verizon nevertheless fell short with their results and suffered small share price falls. Google reported after the bell and disappointed, sending its shares down 4% in the aftermarket. But during the session Wall Street was more focused on Morgan Stanley’s strong result, which saw its shares up 5%.

Morgan Stanley rounds out a very solid set of results from the big banks, with all of JPM, Wells, Citi, BofA and Goldman posting solid profit increases on the same period last year. MS even announced a share buyback. The financial sector led the S&P higher last night, and the rule of thumb is one can’t have a true bull market unless financials are among the leadership group. Taper-talk has also now steepened the US yield curve, which positive for bank earnings ahead.

The Aussie suddenly seems to have become quite volatile in a tight range. Having jumped back up to over 92 on the release of the RBA minutes on Tuesday, which suggested the RBA may hold off on further rate cuts if the currency weakens further, it has now fallen back again, dropping 0.8% to US$0.9168 over 24 hours while the US dollar index was up 0.2% last night to 82.80.

We thus may have found and explanation for the range and at the same time possibly discovered a perpetual motion machine. Aussie goes down, rate cut less likely, thus Aussie goes up, rate cut more likely, thus Aussie goes down…

Realistically, economists suggest the currency would have to fall to something like 85 before the RBA would truly become concerned about inflation.

Commodity markets were relatively quiet last night, with gold up US$7.60 to US$1283.70/oz, base metals all stronger but barely moving the dial, and the oils remaining persistently strong, with Brent up US15c to US$108.76 and West Texas up US$1.60 to US$108.08/bbl. The Brent-WTI spread is now inside a dollar, although we’re presently trading a front month mismatch. There’s no stopping iron ore at the moment, with spot adding another US$1.50 to US$131.90/t.

The futures market has been quite optimistic all week, to little avail. The ASX 200 has come to a grinding halt. Today’s Friday, which probably means we’ll close higher and then drift off on indifference towards the close.

Santos (STO) will release its production report today, while on Sunday Japan will hold its all-important upper house election, which is expected to cement Abenomics and allow for further fiscal reform measures to support the monetary tsunami.

BROKER ALERTS (6 x SFR, 1 x STO, 5 x WPL):

Credit Suisse rates SFR as Downgrade to Underperform from Neutral (5) -

Target $4.85 (was $5.55). June quarter production was pretty much in line. The big problem was that FY14 capex came in well above prior guidance, adding up to $82m or more in FY15. The broker was expecting to see something like $25m a year. The FY14 production guidance also fell well short of the broker given lower average grade and lower recovery rates. At least mine life and reserves have been maintained.

Earnings, the target price and the rating have been lowered, with much due to admittedly conservative house assumptions for near term copper and gold prices, although the higher capex also takes a bite. CS continues to see significant upside potential via resource growth as exploration continues, which in turn could drive further mine life extensions and thus valuation upside.

Target price is $4.85 Current Price is $5.98 Difference: minus $1.13 (current price is over target).

If SFR meets the Credit Suisse target it will return approximately minus 19% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June. Credit Suisse forecasts a full year FY13 dividend of 0.00 cents and EPS of 89.90 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 6.65.

Market Sentiment: 0.3

BA-Merrill Lynch rates SFR as Neutral (3) -

Sandfire reported slightly lower concentrate production in the June quarter. Guidance was in line with the broker's forecasts but the broad range of guidance - 65-75,000 tonnes at C1 cash cost of US$1.05-1.15/lb - does suggest ramp-up risks.

The Neutral rating is retained and the price target is lifted to $6.10 from $5.70.

Target price is $6.10 Current Price is $5.98 Difference: $0.12

If SFR meets the BA-Merrill Lynch target it will return approximately 2% (excluding dividends, fees and charges).
The company's fiscal year ends in June. BA-Merrill Lynch forecasts a full year FY13 dividend of 0.00 cents and EPS of 66.60 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 8.98.

Market Sentiment: 0.3

CIMB Securities rates SFR as Outperform (1) -

In the months since we've last heard from CIMB on Sandfire, the recommendation has found its way to Neutral. The latest from the broker is on the recent quarterly, CIMB saying while the report was pretty positive in most regards, required life of-mine capex is starting to look a little scary. This explains the lower price target, which is down to $6.00.

FY14-15 earnings estimates are also reined in, trimmed by 15% and 25% to bring them in line with the latest company commentary. Neutral call maintained.

Target price is $6.00 Current Price is $5.98 Difference: $0.02

If SFR meets the CIMB Securities target it will return approximately 0% (excluding dividends, fees and charges).

The company's fiscal year ends in June. CIMB Securities forecasts a full year FY13 dividend of 0.00 cents and EPS of 82.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 7.29.

Market Sentiment: 0.3

Citi rates SFR as Buy (1) -

Target $5.60 (was $7.20). FY13 production was broadly in line with guidance, but Citi notes cash costs were higher than expected. FY14 guidance of 65-75kt was also below Citi’s previous estimates, which sees earnings forecasts downgraded.

The broker also expects higher capex once we see a more detailed mine development plan. The lower production estimates and increased development capex are offset a little by lower cash costs, but not enough to keep Citi from cutting its call to Sell from Buy.

Target price is $5.60 Current Price is $5.98 Difference: minus $0.38 (current price is over target).

If SFR meets the Citi target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June. Citi forecasts a full year FY13 dividend of 0.00 cents and EPS of 74.20 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 8.06.

Market Sentiment: 0.4

JP Morgan rates SFR as Downgrade to Underweight from Neutral (5) -

June quarter production was largely as expected. C1 cost data was actually better than expected. Nevertheless, near-term production downgrades have led to significant downgrades to FY14/15 earnings forecasts.

The broker acknowledges Sandfire is one of the few resources companies that will generate positive cash flow on an all-in basis in FY14 but believes the shares are expensive.

The recommendation has been downgraded to Underweight from Neutral and the price target reduced to $6.10 from $6.90.
Target price is $6.10 Current Price is $5.98 Difference: $0.12

If SFR meets the JP Morgan target it will return approximately 2% (excluding dividends, fees and charges).
The company's fiscal year ends in June. JP Morgan forecasts a full year FY13 dividend of 0.00 cents and EPS of 7.00 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 85.43.

Market Sentiment: 0.4

Macquarie rates SFR as Neutral (3) -

DeGrussa is now up and running and transition to full underground ore feed is expected later this year. The company has now revised guidance and grade profile but Macquarie continues to expect a healthy margin based on cash costs and prices. Cash will be used to pay back project finance in the near term.

Macquarie's earnings forecasts for FY13 have been revised down 11% and FY14 by 12% on lower near-term copper output. The Neutral rating is retained. The price target is $6.50.

Target price is $6.50 Current Price is $5.98 Difference: $0.52

If SFR meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).
The company's fiscal year ends in June. Macquarie forecasts a full year FY13 dividend of 0.00 cents and EPS of 92.30 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 6.48.

Market Sentiment: 0.3

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Citi rates STO as Buy (1) -

Target 17.99 (was $17.63). The broker has lifted its 2015 net profit forecast by 9%, as it now expects 2.6mt of LNG from GLNG in CY15. The number used to be 1.5mt. That means GLNG will hit 1st LNG in January 2015 versus previous expectations for some time mid-year.

Citi expects T1 will ramp up in 6 months, with the T2 will ramp up also faster than what seem a conservative guidance of 2-3 years. The broker cites well by well modelling data for GLNG, strong observed flow rates at Fairview so far and given confidence in further gas supply agreements from third parties, especially APLNG.

The growth from PNG LNG and GLNG plus higher expected margins from higher domestic gas prices from the Cooper Basin support the broker’s claim of an attractive valuation. The Buy call is maintained and the price target lifted, the broker seeing further valuation upside from longer-dated growth options.

Target price is $17.99 Current Price is $14.26 Difference: $3.73

If STO meets the Citi target it will return approximately 26% (excluding dividends, fees and charges).

The company's fiscal year ends in December. Citi forecasts a full year FY13 dividend of 30.00 cents and EPS of 53.50 cents. At the last closing share price the estimated dividend yield is 2.10%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 26.65.

Market Sentiment: 0.8

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Credit Suisse rates WPL as Neutral (3) -

Target $40.00 (was $38.50). 2Q production was better than expected, with strong oil production from the off-shore Australian fields making up for downtime at NWS and Pluto. The broker also reports the unplanned shutdown at Pluto earlier this month has been resolved and the plant back in production.

Production forecasts are lifted on the news, although the broker warns they are based on a strong second half given both LNG facilities are fully operational and Vincent oil is starting back up in October. Neutral call maintained.
Target price is $40.00 Current Price is $37.46 Difference: $2.54

If WPL meets the Credit Suisse target it will return approximately 7% (excluding dividends, fees and charges).
The company's fiscal year ends in December. Credit Suisse forecasts a full year FY13 dividend of 230.00 cents and EPS of 210.32 cents. At the last closing share price the estimated dividend yield is 6.14%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 17.81.

Market Sentiment: 0.3

BA-Merrill Lynch rates WPL as Neutral, Medium Risk (3) -

Woodside's liquids production fell 13% quarter on quarter in June and to BA-Merrill Lynch, even allowing for the Vincent/Pluto outage, this high gross margin business is declining sharply. Pluto's spot sales boosted revenue but the broker does not view this level of non-foundation cargoes as sustainable.

Meanwhile, growth projects are in a holding pattern. The Neutral rating is retained and the price target is reduced to $38.73 from $38.92.

Target price is $38.73 Current Price is $37.46 Difference: $1.27

If WPL meets the BA-Merrill Lynch target it will return approximately 3% (excluding dividends, fees and charges).
The company's fiscal year ends in December. BA-Merrill Lynch forecasts a full year FY13 dividend of 171.35 cents and EPS of 214.43 cents. At the last closing share price the estimated dividend yield is 4.57%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 17.47.

Market Sentiment: 0.3

Citi rates WPL as Buy (1) -

Target $41.83 (was $42.00). Citi notes 2Q production came in 5% above its estimates, with revenue 9% ahead. The broker notes the production beat was largely due to variances in the assumed timing of Pluto production outages.
There are only minor changes to FY13 numbers, but FY14-15 are trimmed by 3% and 1% on assumed delays to the Cimatti and Laverda developments. The lower forecasts explain the lower price target.

The Buy call is maintained, as while Citi admits growth is long dated, but also points out Browse FLNG are substantial and in the meantime the strong dividend yield will be supportive and is sustainable to 2020 and beyond. Buy call maintained.

Target price is $41.83 Current Price is $37.46 Difference: $4.37

If WPL meets the Citi target it will return approximately 12% (excluding dividends, fees and charges).

The company's fiscal year ends in December. Citi forecasts a full year FY13 dividend of 231.86 cents and EPS of 219.72 cents. At the last closing share price the estimated dividend yield is 6.19%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 17.05.

Market Sentiment: 0.3

JP Morgan rates WPL as Overweight (1) -

Woodside's second quarter production report contained few surprises. JP Morgan expects the company should perform well for the rest of the year with strong free cash flow, oil price and expansion opportunities still possible such as Leviathan.

The Overweight recommendation is retained and the price target is raised to $43.25 from $42.86.

Target price is $43.25 Current Price is $37.46 Difference: $5.79

If WPL meets the JP Morgan target it will return approximately 15% (excluding dividends, fees and charges).

The company's fiscal year ends in December. JP Morgan forecasts a full year FY13 dividend of 253.60 cents and EPS of 229.12 cents. At the last closing share price the estimated dividend yield is 6.77%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 16.35.

Market Sentiment: 0.3

Macquarie rates WPL as Neutral (3) -

The latest quarterly production numbers were solid with strong sales. Production was down slightly year on year while sales revenue was supported by off-contract Pluto sales. There was no material news on growth projects.
The Neutral rating and $40.00 price target are maintained.
Target price is $40.00 Current Price is $37.46 Difference: $2.54

If WPL meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

The company's fiscal year ends in December. Macquarie forecasts a full year FY13 dividend of 236.95 cents and EPS of 220.31 cents. At the last closing share price the estimated dividend yield is 6.33%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 17.00.

Market Sentiment: 0.3